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28/10/2016

Corporate and personal insolvencies increase over the summer

Commenting on a rise in both corporate and personal insolvencies, Andrew Tate, president of insolvency and restructuring trade body R3, says:

Corporate insolvency

“A quarterly rise in corporate insolvency numbers is not necessarily an indicator of ‘Brexit’-related financial problems for UK companies. At least, not yet. While companies dependent on imports are struggling with the falling value of the pound, anecdotal evidence from our members suggests the vote to leave the EU has not led to more insolvency procedures due to factors other than the exchange rate. However, we are hearing that more companies have been coming to restructuring experts for advice.

“According to R3 research, UK companies remain in good shape. Only 21% of businesses – close to a record low – surveyed by R3 and BDRC for our most recent Business Distress Index report a key indicator of distress, while 62% report at least one sign of growth.”

“So long as the economy continues to grow steadily insolvency numbers are unlikely to rise too much, but, of course, that all depends on what impact ‘Brexit’ has on the economy.”

“Corporate insolvency numbers stabilised earlier in the year around pre-financial crisis levels following a prolonged downward trend, and insolvency numbers are pretty much in line with where they were this time last year. Occasional quarterly increases are not unexpected.”

Personal insolvency

“The rising cost of living and reforms to make personal insolvency procedures more accessible have combined to push insolvency numbers sharply up over the last quarter and in comparison to this time last year.”

“Individual Voluntary Arrangement numbers, which make up the bulk of personal insolvencies, are sensitive to the cost of living. IVAs fell rapidly from 2014 onwards as wage growth finally overtook inflation after the financial crisis. Having plummeted towards 0% in 2015, inflation has been rising again this year and IVA numbers have followed.”

“Consumer debts are on the rise and savings rates are incredibly low so it’s very easy for even a small financial shock to make someone insolvent. Although wages are outpacing inflation in the economy overall, there are people on the financial edge for whom any increase in the cost of living could cause problems. When people do run into financial difficulties now, there is very little room for manoeuvre unless they act quickly and seek advice.”

“The falling value of the pound post-‘Brexit’ referendum will continue to put pressure on wages and IVA numbers could be a useful indicator for how the vote to leave the EU is affecting personal finances.”

“Meanwhile, access to bankruptcy and Debt Relief Orders has been reformed. The welcome increase of the debt and asset limits for DROs in late 2015 means more people have been able to sort out problem debts through the formal insolvency regime than ever before. Access to bankruptcy is not so straightforward - accessing bankruptcy has been made easier by the government’s decision to switch to an online adjudicator process for some cases rather than require people to petition for their own bankruptcy through the courts.  The Government, however, increased the basic fees it charges for every bankruptcy case by over 30% in July 2016 which may deter those for whom bankruptcy is the best solution.”

 

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.